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Business debt consolidation is one of the strategies that you can use to improve the financial side of your company.

Most of the time, businesses come into existence because of debt. Aspiring business owners opt to borrow money to help build their dreams of becoming entrepreneurs. If you are lucky, your business will take off and you will be able to pay the startup money you borrowed. But if you are like the unfortunate ones, there is a high chance that you will struggle to get your business to improve. At least, have enough improvement to help you stay afloat and pay off what you used as your startup money.

According to statistics, cash flow issues cause 82% of businesses to fail. It is not specified in this data if it is caused by debt. However, if you know how destructive debt can be, we can safely assume that business loans might have contributed to these cash flow issues. After all, the profit earned had to be shared with debt payments. Instead of using it to invest in the growth of the company, the business finances is limited because the capital funding had to be returned.

This is the reason why companies with debt should consider business debt consolidation as soon as possible. Entrepreneurs should not wait until it is too late for the business. They should use this debt relief strategy to combine their multiple debts into a new loan. When the new loan is approved, it is used to pay off the old ones. The business is left with a single loan with better terms, lower interest rates, and a more favorable repayment plan.

Why business debt consolidation makes sense

The use of debt in business is not uncommon. In fact, a lot of companies use debt regularly. It is perfectly alright to borrow and you will find it easier to get approval. As long as you can prove that the business is profitable, you will get approval for the loan. Even better if you can prove that it will be used to expand the business, thus making it even more profitable.

While using debt is the norm, that does not mean it should be used recklessly. If you find signs that your debt is starting to threaten your business, you might want to consider getting debt consolidation help. It can bring a lot of benefits to the financial side of your business. Here are the reasons why it makes sense to use business debt consolidation.

Lower interest rate

If your business is used to debt, this should not come as a surprise. It is a common goal for businesses to do everything they can to reduce the interest in the loans they will borrow. In fact, you should always look for the one with the lowest APR. This is one of the ways that you can save money on loan payments. If most of your debts at the moment have high-interest rates, then debt consolidation makes sense. It can give you the chance to lower the interest that you will pay.

Lower payments

In case you notice that your debts are using up most of your monthly budget, business debt consolidation gives you the chance to restructure your payments. If the monthly debt payment of $5,000 is too much for your business, you can consolidate it into a new loan that will allow you to pay only $4,000. It is just like refinancing but the best part about it is you can combine multiple debts under this new one. It will give you more room in the business finances. You can use the extra money from your cash flow to improve your business operations. Of course, a lower monthly payment means you will be in debt longer. But if it is what you need to get your business operations running smoothly, then it should work perfectly for you.

Easier management of cash flow

Since you are no longer keeping track of multiple debts, it is easier to manage the cash flow of your business. When you monitor a lot of details in your cash flow, there is a higher chance that you will make a mistake. But with more simple debt payment, it is easier to control your cash flow. And since you are no longer putting too much effort in monitoring your finances, you can focus on other aspects of the business.

Consistent payment plan

You have to realize that business debt consolidation is more than just combining your debts under one account. It is an opportunity to improve your business finances. It will not just help you monitor your cash flow easily, it will also allow you to make plans easily. Some business loans come with variable interest rate. This means your monthly payments will vary. If you want to change this, you can opt for a fixed rate. This is a good idea if your business has a better credit score than when you borrowed the original one. You can get a better interest rate. If the average rate is lower too, that will be better for the business debt consolidation loan that you will borrow.

With a more consistent payment each month, it is easier for you to budget your finances and control your overhead expenses. If you have to make plans for the business, it will be easier to forecast the state of your business. You know how much your debt payments will cost you each month. You will also know when you will completely pay off your debts.

How to consolidate business debt

Now that you know that benefits of business debt consolidation, let us figure out your options to do it.

The truth is, the best option is a loan. Fortunately, it is easier for businesses to get loan approval. For big banks, there is a 26.9% approval rate for small business loans. The statistics go higher for smaller banks – with a 50.2% approval rate. If you need a business debt consolidation loan, there is a high chance that you will get approved for it.

Of course, getting approval for the loan is only the first step. Once you use it to pay off your current debts, do not think that you are already in the clear. You still have a lot of debts to pay off. You just shifted your debts so it is under one loan.

If you really want to get rid of business debt, here are some tips that you need to implement.

Have a solid repayment plan for the debt consolidation loan.

Make sure the debt is aligned with the budget of the business to ensure that it will always be funded.

Limit credit spending unless it is really necessary.

If employees are allowed to use credit cards, make sure there is a limit.

Try to save for future expenses instead of borrowing money.

Lower your overhead costs to keep spending low.

You have to remember that business debt consolidation is only effective if you can commit to your monthly payments. Do not think that you are already debt free. There is still a long way to go when it comes to your debt payments. Make sure that you give importance to your debt so you will not compromise your ability to get financial aid when your business needs one in the future.

Using this type of loan is actually a very effective and popular way to get out of debt. There may be people who even look at it as their first debt relief option. It seems like a logical way to improve your debt payment strategies. Among the benefits that you will get are a lower interest rate, single monthly payment, and even better terms and fees.

Of course, since this is still a loan, you need to qualify for it. Unless you get approval, you will not really enjoy the benefits that debt consolidation loans can bring to your finances. So if you are sure about using this debt relief strategy to get out of debt, you need to make sure that you have what it takes to get debt consolidation loan approval.

Qualifications to get debt consolidation loan approval

The qualification to get approval for a debt consolidation loan might vary. This will depend on the lender that you have chosen to borrow from. It is important for you to consider more than one lender to determine which of them offers the best loan for your debt situation.

While the details might be different, the general qualifications are actually the same. If you want to get debt consolidation loan approval, these are the things that the lender will check out.

Income

While it is possible to consolidate debt even if you are broke, it might be hard to do it through a loan. If you want your loan to be approved, you have to prove that you can afford to pay it back. Obviously, that means having enough income to show them. It is not enough that you can show them that you are earning money. You need to prove to them that it is a steady and stable source of income. That it will be available for a long time.

Not only that, it has to be big enough to make your monthly payments a specific percentage of the income. After all, the lenders know that the income will be used on other expenses too – not just the debt payments. They have to make sure that you can afford to live comfortably and still pay off the debt. If not, there is a high chance that you will skip your debt payments in favor of paying for basic necessities. That is something that they will not risk. If you can prove that, then you are one step closer to getting a debt consolidation loan approval.

Payment history

This is shown through your credit report. One of the things that they will look into is your payment behavior. If you borrowed money in the past, they will look at how you paid it off. Were you always on time? Or did you miss out on a couple of payments? These will affect the approval of the loan. It does not matter if you are earning a lot of money. If you are not responsible enough to pay back your past debts, it will be harder for you to get approval for the loan.

Economic stability

It was mentioned earlier that it is important for you to prove that you can sustain the whole repayment plan for the loan. This is where your economic stability will come into play. As of now, this might not be hard to prove. According to reports, 9 out of 10 workers are secure about their jobs. If you feel the same because you know that you will not be laid off anytime soon, then that is a good sign for the lender.

But that is not all that they will look into. They will also check how long you stayed in your job. If you are new, there is a greater risk that you will lose your job or get laid off. The lender will also check if you kept on moving houses. These are all signs of an unstable lifestyle so you need to make sure it will not affect your debt consolidation loan application.

Collateral

To be clear, not all debt consolidation loans require collateral. If you have a good credit score, you can borrow an unsecured loan to help consolidate your debts. But if you do not have that, then offering collateral will help make your interest rate lower. It will also give you more money to work with – allowing you to consolidate a lot of debts. Of course, if you will use collateral, the lender will have to approve that as well. It has to have enough equity to cover the amount that you want to borrow. Even if your equity is $50,000, you cannot borrow everything, just a percentage of that.

What to do after getting debt consolidation loan approval

After you get a debt consolidation loan approval, do not think that the job is done. You still have a lot of things to do. Contrary to what you may believe, the approval is not the end of your debt relief program. Although all your original debts are paid off, you still owe the same amount of money. You just transferred your balance under one account.

This is why you need to make sure that you do not fall under a false sense of debt freedom. There is still a long way to go but it will be easier if you do the following.

Pay off your multiple debts immediately

As soon as you get the debt consolidation loan approval, you need to use the money immediately to pay off your debts. You want to do this as soon as possible because the longer the money stays in your hands, the more tempting it will be to use it for something else.

Have a repayment plan

Ideally, you should have a repayment plan before you get a debt consolidation loan approval. Planning the repayment will force you to look at your finances so you can determine if you can afford the future payments or not. It will encourage you to borrow only what is necessary. At the same time, it will also help you get the payments started after the loan is approved. This plan will serve as your guide as you slowly complete your journey towards debt freedom.

Revise your budget plan

To be successful at any debt relief option, you need to pay attention to certain budgeting tips so you can get to debt freedom easily. If you have a repayment plan, you need to check your budget plan to ensure that it will be aligned with each other. Your budget plan should support your repayment plan. If not, it will be hard for you to completely pay off your debts according to your repayment strategy.

Stop borrowing money

Finally, you should also stop borrowing money after you get the debt consolidation loan approval. You will not completely eliminate the use of credit. But you have to stop borrowing while you are still paying off what you owe. If you keep on borrowing, your debt payments will never end. It will always be there adding to the stress that you are already feeling. You can still use credit in the future but make sure that you know how to use it wisely. That way, you will never land in the same destructive debt situation again.

Cash out refinancing is one of the options that you have to consolidate debt. The truth is, you have a lot of options when it comes to getting out of debt. However, you need to take time to get to know each of them before you make a choice. This will allow you to determine if it is the perfect solution based on your financial situation. A debt relief program may boast huge savings but if you have the wrong financial conditions for it, there is a high chance that you will fail.

This is why it is important for you to do your research first. With the rising outstanding debt in the country, it is expected that a lot of people will be looking for a way to pay off their debts efficiently. The challenge is finding the perfect solution that suits you best.

One of the strategies that people use to get out of debt is to use their home equity. With the continuous decline of interest rates in the mortgage industry, it is not surprising that there is a recent rise in mortgage applications. And this is not just for new home loans. There is also a rise in people getting cash out refinancing to help them get out of debt.

What is cash out refinancing?

Not everyone is familiar with the idea of using this type of refinancing as a debt solution.

A cash out refinancing involves borrowing more than the balance of your mortgage. Let us assume that you borrowed $500,000 and you have paid off $200,000. That means you still have $300,000 as the balance of your mortgage. You will then refinance your mortgage by borrowing $350,000. The $300,000 will be used to pay off your old mortgage while the $50,000 will be left as a lump sum amount that you can use however you decide. For most people, they will use it to pay off other debts like credit cards, etc.

To help you decide if this is the perfect debt relief strategy, here are important things to know about it.

Steps to apply for cash out refinancing

Get your home appraised to know how much equity you have.

Look for a lender that offers the best interest rate and terms.

Decide on how much you can borrow.

Apply for the loan and wait for approval.

Upon approval, use the loan to pay off your existing mortgage.

Use the extra cash to pay off your multiple debts.

Come up with a solid repayment plan towards the new lender and stick to it.

Cash out refinancing cost and fees

Refinancing your mortgage will involve a lot of fees. These include the application, appraisal, insurance, etc. All in all, it can cost you an additional $2,000 to $5,000 plus the pre-payment penalty and loan origination fee.

This is why it is important that you only borrow what you need. Not only that, but it is also a must that you ensure that you will get a lower interest rate. If you cannot get approval for a lower rate, then it does not make sense to refinance. You will be paying more if you end up with a higher rate. Time your refinancing application when the interest rate is down.

How can cash out refinancing consolidate debt?

Now that you know what cash out refinancing is all about, how can it help you consolidate debt?

The truth is, this is one of the risky debt consolidation options. After all, you are putting up your house as collateral. If you fail to pay your loan, you might end up losing your house. But if you do things correctly, there are a couple of things that cash out refinancing can help you with.

Gives you the cash to pay off your multiple debts

First of all, it will give you the cash that you can use to pay off multiple debts. As mentioned, this type of refinancing allows you to borrow more than your balance. That amount will be based on the equity and the appraised value of the house. The loan that will be approved can be used to pay off the balance of the original mortgage. The rest will be given to you as cash to be used however you want it. If you refinanced with every intention to consolidate, you can use this to pay off your credit cards, personal loans, student loans, etc.

Allows you to put all your debts under one loan

Since you used the lump sum money from the cash out refinancing to pay off your other debts, you have just successfully put all your credit accounts under one loan. There are so many benefits to this move. You do not have to feel too stressed trying to monitor all your debts. You just have to focus on one payment each month. This will help you redirect your focus on something else – like earning more or trying to reach another financial goal.

Lowers your interest rate since it is a secured loan

Finally, cash out refinancing will help lower the interest on your debts. This is, after all, a secured loan. You can thank your house for being the collateral. If you are consolidating mostly high-interest credit card debts, you will save a lot of money because of the lower rate. Of course, you have to be careful when using your home in debt consolidation. You need to make sure that you can afford to pay it back. Otherwise, it you might end up losing your home.